Finance Bill

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Clause 17

Rates of climate change levy
Mr. Browne: I beg to move amendment No. 57, in clause 17, page 8, line 40, at end insert—
‘(3) In sub-paragraph 2(1) of Schedule 6 to FA 2000 after “on”, insert “the level of carbon dioxide emissions emitted by”.’.
My party supports the climate change levy in the absence of a better alternative, but the amendment proposes the introduction of something that we regard as a superior alternative—a carbon tax. I shall explain briefly why we believe that to be the case. The climate change levy is too complex, it offers too many exemptions and suffers from a confusion of objectives. It does not apply at a standard rate to each tonne of carbon, and it applies only to business users. What is more, several confusing initiatives are used concurrently, such as the European Union emissions trading scheme, which is compulsory for heavy industry and the power sector; the United Kingdom emissions trading scheme, which is a voluntary scheme in which firms are incentivised by the Government to reduce emissions through trading; and other climate change agreements between industry and the Government. The amendment would consolidate the various initiatives and schemes into a more effective and efficient carbon tax.
The carbon tax would apply to all carbon fuels at a uniform rate per tonne of carbon at the point at which they enter the economy. Our party policy is to tax emissions from energy supplies, as is done in other European countries that we often regard as leaders in good practice, such as Sweden, Norway and the Netherlands, and it would enable us as a nation to reduce pollution. The proposal is to set the carbon tax to achieve a level of emissions reduction that is not otherwise achieved through the emissions trading scheme; to adjust the carbon tax to maintain progress towards our long-term target of carbon neutrality, with any changes to the tax notified well in advance to give investors time to adjust; and to use the revenues to cut other taxes when possible so that the overall net effect of the tax burden is neutral.
Being a realist, I do not anticipate that the Committee will be persuaded of the case for the amendment, however brilliant my speech may, or may not, have been. It is worth my saying, to save my rising to speak again, that we support the climate change levy, because it is better than not having such a levy, and we support increases in line with inflation. Until that levy is replaced with a more coherent carbon tax, we will support the arrangements advanced by the Government.
2 pm
Mr. Gauke: We have some sympathy with the objective outlined by the hon. Member for Taunton, but whether that is because of the brilliance of his speech or otherwise I leave others to decide. However, we share the view that the climate change levy is an imperfect tax. My right hon. Friend the Member for West Dorset (Mr. Letwin) once said, in a typically erudite allusion, that it reminded him of what history masters used to say about the Holy Roman empire: it was neither holy nor Roman nor an empire. The climate change levy is not really about climate change: it is a tax on energy. Although that might be an aspect of reducing carbon emissions, it is not the complete story, because if we want to reduce carbon emissions we need to distinguish between sources of energy that produce a lot of carbon and those that do not. The climate change levy does not sufficiently address that matter and is therefore flawed. I have a lot of sympathy with what the hon. Member for Taunton said and with the objective proposed in amendment No. 57.
Others have criticised the climate change levy: the Royal Commission on Environmental Pollution described it as a blunt instrument, and the Select Committee on Environmental Audit also made a number of criticisms. The levy is flawed and is not ideal, so there is accordingly a need to reform it into a carbon tax, which it is not at the moment, rather than an energy tax. Although I have expressed sympathy for the amendment, whether it does everything that the hon. Member for Taunton would like it to do is another matter. But as far as the objective is concerned, we hope that the Government will listen and reform the climate change levy and replace it with a genuine carbon tax.
Kitty Ussher: I hear what the hon. Member for Taunton says, but, unfortunately for him, his amendment will not work, regardless of how sophisticated his rhetoric is.
Mr. Browne: It is pretty sophisticated.
Kitty Ussher: The hon. Gentleman’s comment will go into Hansard. However, under his amendment, the levy would be based on emissions rather than on energy supply. There would be a technical problem with doing that—as well as legal problems—notwithstanding the fact that amending the introduction to the clause is insufficient to achieve the legal outcome that is required. However, I take his amendment in the spirit in which it is intended, so I will overlook that problem. The real problem is that the amendment would be contrary to European Union directive 2003/96, which requires a tax on energy supply rather than emissions.
The main problem that I urge Committee members to consider stems from the fact that our climate change levy has been incredibly successful as devised. An independent analysis by Cambridge Econometrics, published at the time of the 2005 Budget, estimated that it had delivered emissions savings of more than 16 million tonnes of carbon up to that point, that by 2010 it would save some 3.5 million tonnes of carbon a year—well above initial estimates—and that it would reduce energy demand in business and public sectors by some 15 per cent. a year. The hon. Gentleman’s amendment is therefore unnecessary.
Mr. Browne: I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Mr. Gauke: I beg to move amendment No. 68, in clause 17, page 8, line 40, at end insert—
‘(3) The Treasury shall publish, not later than the date of the Budget 2009, an estimate, audited by the Independent Committee on Climate Change (as established by the Climate Change Act 2008), of the carbon emissions savings resulting from the changes to climate change levy contained in this section’.
There is no need to repeat all the arguments that we have just heard about the climate change levy in general, although my amendment addresses one aspect of what we were considering: its effectiveness in reducing carbon emissions. Everything that the hon. Member for Taunton and I have said about the flaws in the climate change levy in that context should be borne in mind. The Minister quoted the Cambridge Econometrics report. I have a quote from Cambridge Econometrics—I believe it is from the same report, but I apologise if that is not the case—which observes that the relative decline in UK energy-intensive manufacturing sectors suggests that many of the energy efficiency and carbon saving targets would have been achieved without carbon change agreements. It says of the climate change levy:
“Only for one sector did we find that the CCA would have been missed had no climate change levy ever existed.”
It is also worth noting the observations made by the Environmental Audit Committee, which acknowledged that the tax is on course to save 12.8 million tonnes of CO2 by 2010, according to a Government report on the scheme’s impact. The Committee also viewed the tax as the second largest element of the Government’s climate change programmes in terms of carbon saving:
“the CCL significantly raised awareness of potential carbon savings in the business environment before implementation. This resulted in the majority of savings being made before the tax was actually introduced.”
Is the climate change levy as effective as it might be in reducing carbon emissions? If we wished to do so over the years ahead, a review would be helpful. The Government should consider that on an ongoing basis to see whether the climate change levy is working as effectively as it might. That is why we have tabled amendment No. 68, which requires the Government to make
“an estimate, audited by the Independent Committee on Climate Change...of the carbon emissions savings resulting from the changes to climate change levy contained in this section”,
so that we can see whether we are making as much progress as we should. That would inform the debate about whether the climate change levy should be replaced by a carbon tax, as two of the three major parties advocate.
Kitty Ussher: In a sense, we agree with the spirit of the amendment, although we are not prepared to accept it, for reasons that I shall explain. The hon. Gentleman was right to discuss the work by Cambridge Econometrics. I will go back and read the report again, but what Cambridge Econometrics said to us was that, in its analysis, the climate change levy would save 2.8 million tonnes per annum and reduce energy demand in the business and commercial sector by 22 per cent. by 2010. It is an independent, well-respected consultancy, and it used peer-reviewed econometric methodology, so one cannot get much better than that.
The amendment requires that we publish, no later than the date of the Budget 2009, our own estimate, audited by the independent Committee on Climate Change. There are two problems with that. First, now is not the time for a further review, as the independent study has just been completed. It is better to do such work independently. A lesser, but relevant, point is that the independent Committee on Climate Change was not set up to audit Government forecasts or assumptions, so it would not consider that to be in its remit. I have no problem with the general point that we should always keep under active review the effect of our policies. People would expect us to do that across all Government policies, and we will continue to do so in the medium and long term with this policy. However, the amendment will not achieve the spirit of what it intends to achieve.
Mr. Gauke: This is one of those rare occasions when the Government do not support a review.
Mr. Browne: Or a Conservative policy.
Mr. Gauke: Indeed. I know that the hon. Member for Taunton often has fun claiming that the Liberal Democrats are the real alternative. He has given a new definition to “alternative comedian” in the course of our proceedings.
Mr. Mark Field (Cities of London and Westminster) (Con): They are neither real nor alternatives.
Mr. Gauke: Either that or the comedic alternatives—I am not sure. I am satisfied for the moment with the Economic Secretary’s remarks. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Mr. Gauke: I have one quick question. Should the climate change levy be seen as revenue neutral? Should money raised by the climate change levy be used to reduce taxes in other areas, or for items of expenditure of a related nature? I believe that when the levy was introduced it was supposed to be revenue neutral. At the time, employers were compensated for the levy with a reduction in national insurance contributions, but since then, their national insurance contributions have increased. Is it the Government’s policy that the climate change levy should be neutral, and that increases in that area would be offset by cuts elsewhere? There is a problem with the credibility of green taxes, which are viewed as stealth taxes. If it were clear that additional revenue raised in that area would be used to reduce taxes in other areas, the suspicion and cynicism would not be so strong.
The Chairman Mark Field: intervention; short.
Mr. Field: I shall try to ensure that it is both short and an intervention. You may have other views, Sir Nicholas.
My hon. Friend made an interesting point, and I would be interested to hear what the Economic Secretary has to say in that regard. Does my hon. Friend agree with me that if climate change and other environmental taxes are genuinely to do what we expect, they should not necessarily be revenue-neutral? They are there to change behaviour, and therefore any Government should be relatively open-minded about the revenue.
Mr. Gauke: I am grateful to my hon. Friend. There are two issues here. One is whether the use of an additional green tax will be offset in another area. The other is that in formulating financial projections of the revenue to be raised from a green tax there is the issue that it will alter behaviour. Depending on the circumstances, such a tax may ultimately result in reduced revenue over the years. My hon. Friend made an important point. I would be grateful for the Economic Secretary’s clarification as to the Government’s policy in that area.
2.15 pm
Kitty Ussher: I shall briefly explain—because we have not yet done so—exactly what clause 17 does. Simply, it legislates for the revalorisation of the climate change levy rates announced in the Budget 2008. As stated in the Red Book at the time, that maintains the environmental effect of the tax after taking account of inflation.
I am delighted to be able to answer the hon. Gentleman’s point. When the climate change levy was introduced in April 2001, it was made clear that the purpose was to recycle the revenue back to business, primarily through the 0.3 per cent. reduction in employers national insurance contributions introduced at the same time as the levy.
The hon. Gentleman mentioned “stealth taxes”. Like the Exchequer Secretary to the Treasury, it always makes me laugh when people start talking about stealth taxes because, by definition, if they are talking about them, they cannot be very secret. Cab drivers have a particular habit of cornering me on that one, and I am always tempted to say, “If it is so secret, how do you know about it?”. I can reassure the hon. Gentleman that no extra revenues are secretly being siphoned off elsewhere. I do not know if this has been said before, but the levy has consistently raised less than the value of the national insurance contributions cuts that it was designed to fund, so quite the opposite is the case. I hope that that will be sufficient to reassure the hon. Gentleman.
Question put and agreed to.
Clause 17 ordered to stand part of the Bill.
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